The US regional banking sector has been priced for ongoing commercial real estate stress since the 2023 mini-crisis. The fear was that office-loan workouts would slowly grind through reserves and capital, producing dividend cuts and capital raises across the sector. By the middle of 2026, that scenario has not materialised. Reserve builds peaked in 2024, charge-offs are running below expectations, and the multifamily portion of the CRE book — always larger than office — has held up better than feared. The regional bank trade is now a rerating trade off cleaner balance sheets.
Key takeaways
- Office charge-offs ran below 2024 stress test scenarios.
- Multifamily and industrial CRE held up better than feared.
- Reserve coverage ratios have peaked and are now declining.
- Regional bank multiples remain below pre-2023 levels.
What worked
Three things kept the CRE scenario from playing out as the bears expected. Office workouts were slow but orderly. Multifamily held up because of the sustained housing shortage. And the regional banks generally raised capital pre-emptively in 2023–2024, leaving them better positioned than the headline narrative suggested.
- Office NPL formation: peaked and rolling over
- Multifamily: stable on housing shortage
- Industrial CRE: resilient
- Capital ratios: meaningfully above regulatory minima
What it implies for multiples
Regional bank multiples remain below their pre-2023 levels. The rerating opportunity is for the names that took early reserve builds and aggressive office mark-downs — they have the cleanest current balance sheets.
What still doesn't work
Pure-play office REITs remain under structural pressure.
What the next stress test means
The 2026 stress test results should validate the cleaner balance sheets.
Regional bank CRE reserves
| Period | CRE reserve ratio (avg) |
|---|---|
| Q4 2022 | 1.4% |
| Q4 2023 | 2.0% |
| Q4 2024 | 2.6% |
| Q1 2026 | 2.4% |
The CRE reckoning was real, but it is mostly behind us.
Frequently asked questions
Is the office story over?
The bank story is. The REIT story is not.
What about multifamily?
Resilient.
How aggressive is the rerating?
It has started, not finished.
The bottom line
The regional bank CRE story is mostly resolved. The rerating trade is now the right expression.
